Thursday, August 26, 2010

It's not easy to make money by investing in cars, but it's possible

One of the most often read blog posts on "driving philosopher" is talking about today's investment opportunities in the automobile space. 10 cars are presented that have good chances of gaining in value. There's something to say however. Gaining in value isn't enough to be a worthwhile investment if the only objective is to make money. The chart here shows a very simple model. Assume you buy a car at € 20'000, 30'000.- or 500'000. Assume it will gain 10% in value every year over twenty years. Assume you spend some money to keep the car road worthy and properly stored and insured. At the end of the period your total gain was € 14'318 if you bought a € 20'000 car. This means you average interest rate per year was 3.6% if you kept the car for so long. But only after 17 years you actually are in the positive zone. Before that you lost money. What this chart also says is that it's easier to make money with more expensive cars. The reason is that maintenance and storage don't influence the figures as much as with less expensive cars. But, very few cars really gain 10% in value very year. It probably has been true for a Lamborghini Miura, few Ferraris and some rare racing and sports cars. But the well loved Mercedes 280 SL Pagoda (R113) for example gained only 30-40% in the last ten years, so less than 4% per annum. So this is a tricky business. Anyway, I stick with my argument mentioned earlier, buy your car because you like it and love to drive it, take any money you win with it as an expected up-sight.

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